Gold price oversold in fragile longer term uptrend

US dollar index / basket – technical analysis

The fortune of the spot gold price (red and green candles) remains inversely correlated to that of the US dollar index (blue and grey candles). The chart above highlights how when the dollar has been trending lower, gold has been trending higher, and more recently when the dollar has been rising we have seen gold falling.

In lieu of this pronounced gold / dollar relationship at present, traders might be interested to see the 'dollar price reversal in overbought territory' article in addition to the gold forecasts highlighted below.

Gold – technical indicator assumptions

The 20 day simple moving average (20MA) (red line) trading below the 50 day simple moving average (50MA) (green line) shows that the price of gold is trending lower in the short to medium term. The price does however remain firmly above the 200 day simple moving average (200MA) (blue line), suggesting that the longer term trend remains up (for the time being). The stochastic suggests that the price has now moved into oversold territory.

On balance these technical indications suggest that the price of gold is currently in a short to medium term correction of the longer term up trend still in place. The oversold signal suggests that the short to medium term correction could be nearing an end.

Gold - price action

The short to medium term correction of the longer term uptrend has taken the price below support at 1820. The move lower has taken the shape of a small falling wedge pattern (black lines).

The falling wedge pattern suggests a slowing momentum to the move lower and possible rebound to follow.

Traders in support of the longer term uptrend still in place might hope to see a move back above upper wedge resistance and the 1820 resistance level, as well as sharp move out of oversold territory before finding new long entry into spot gold.

In this scenario 1845 and 1875 become the initial upside resistance targets from the move, while a close below the reversal low might be used as a stop loss consideration for the trade.

Gold – IG client sentiment

The above graphic highlights current IG client sentiment data for the spot gold price as of the 27th of February 2023. 76% of IG clients with open positions on the commodity currently expect the price to rise in the near term, while 24% of IG clients with open positions on the commodity expect it to fall.

The IG sentiment indicator does reflect predominantly retail trade sentiment on gold right now.

Key data to watch this week

Key economic data scheduled for the week which is likely to influence the US dollar and in turn gold is as follows:

• 1 March, ISM Manufacturing Purchasing Managers Index (PMI) data out of the US (est. 47.9 previous 47.4)
• 2 March, Weekly Unemployment Claims data out of the US (est. 196000, previous 192000)
• 2 March, Federal Open Market Committee (FOMC) member Waller speaks
• 3 March, ISM Services PMI data out of the US (est. 54.4, previous 55.2)